Incentivizing employees can be an important factor when it comes to an employer’s bottom line. Several common misconceptions about the Fair Labor Standards Act (FLSA) have driven decisions regarding incentive payments for too long.
Over the last few months, the U.S. Department of Labor’s (DOL) Wage and Hour Division has clarified how the FLSA applies to incentive payments made to overtime-eligible employees. While a wake-up call for some employers, these are not really changes in the law per se.
Rather, the change is that by announcing these clarifications, the agency has provided employers with more knowledge and empowered them to explore compensation structures that include incentives.
Whether adding, removing, or tweaking incentive payments, employers will want to revisit these three aspects of the FLSA in light of recent developments.
1. Not Everything Increases the Regular Rate for Overtime Pay.
Usually, we are reminding employers that all wages are factored into the “regular rate” when paying time-and-a-half unless it falls within a specific exclusion. But this year, we have regulations that help employers understand those exclusions.
Among other things, the agency addressed the exclusion of “perks” (such as gym access/memberships, employee wellness programs, and on-site offerings) from the regular rate.
2. Salaried Employees Can Receive Bonuses, Too!
Examples are great, but sometimes, the particular facts are mistaken as an exacting checklist. Thankfully, the DOL has set this record straight!
If you are paying based on a fluctuating workweek (a salary for all hours worked, plus the overtime premium) and thought you wouldn’t have to also pay incentive pay (or vice versa), there now is a regulation specifically permitting fluctuating workweek and incentive pay. Just remember to pay the overtime premium (halftime) on both.
3. Is That Employee Actually Exempt from Overtime?
In another area where (decades-old) examples have taken on lives of their own, the FLSA’s commissioned-employee exemption has been interpreted as applying to a smaller subset of employees than the actual test dictates.
This exemption from overtime-only has a few prongs, but one that has caused many employers to not even consider it is the requirement that it be a “retail or service establishment.”
Several businesses that are commonly used by individuals today were deemed to be “lacking” the retail concept (including banks, dry cleaners, insurance agencies, tax preparers, and travel agencies, to name a few), making the exemption an uphill battle despite the fact that a particular establishment might meet all of the relevant factors.
Now the infamous list has been removed, and employers that can meet the “retail” test just might be able to use the exemption for qualifying employees.
Of course, there are more details to consider before making a change, including taking state law into account. But at a time when employers are looking at their bottom lines and still want to incentivize employees, these developments might provide just the right balance.
Join Fisher Phillips attorneys to get the latest on fluctuating workweek, the 7(i) commissioned-employee exemption, and what the “regular rate” really means for many employees, when you attend the live webinar, “DOL Guidance: Are You Doing OT Correctly? Could You Save $ with the New Rules?,” on Wednesday, July 29, 2020. Click here to learn more or to register today!
Cheryl Pinarchick is a partner in the Fisher Phillips’ Boston office and a founding Co-Chair of the Pay Equity Practice Group. Cheryl has a very active, national employment litigation practice, including wage and hour collective and class actions. Cheryl also counsels employers on compliance with the law in areas such as wage and hour matters, pay equity, employment discrimination, wrongful termination, reductions in force, FMLA and leave laws, sexual harassment, and restrictive covenants. She is a member of the firm’s Essential Business Taskforce developed in response to the COVID-19 coronavirus crisis as well as a member of the firm’s SBA Loan Team, dedicated to advising employers on the inner workings of the complex CARES Act loan process during the COVID-19 coronavirus pandemic.
Joshua Nadreau is a labor and employment litigation attorney in the Boston office. Working with clients in New England and throughout the country, Josh routinely advises and represents clients in wage and hour audits, internal pay practices reviews, drafting of compensation agreements, and before state and federal administrative agencies. His litigation practice focuses on class and collective wage and hour litigation, labor-management relations, and equal employment opportunity issues. Josh is a member of Fisher Phillips’ COVID-19 Taskforce, which advises employers nationwide on COVID-19 related employment issues.